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Vol. 6, Iss. 5
May 17, 2017

Poor United: Now Airline Loses An Insurance Coverage Case

I’m not going to pile on United Airlines about its dragging a passenger off a flight last month. That horse has been beaten to death. When I first saw the video of that poor United passenger kicking and screaming I thought someone was trying to take away his copy of Coverage Opinions.

On the same day that United released its report, describing all of the reasons and shortcomings that led to the reaccomodation of Dr. David Dao, it lost an insurance coverage case. What a coincidence. Because of this, I may have addressed the case here even if it weren’t interesting. But, in fact, the case involves an important coverage issue.

In United States Aviation Underwriters v. American Home Assurance Co., No. 1-16-1630 (Ill. Ct. App. April 26, 2017) the court addressed coverage for United Airlines as an additional insured under a policy issued to Air Wisconsin. Air Wisconsin operated flights, under United’s “United Express” mark, in cities where it was uneconomic for United to operate such services.

In December 2004, a pilot, James Reiners, slipped on a ramp, and hurt his back, while exiting a United Express flight that had landed at O’Hare Airport. The flight was operated by Air Wisconsin. Reiners filed suit against United, alleging that United’s negligence caused his injuries. He alleged that United was negligent in failing to provide a safe path of travel from the airplane to the indoor area, and for lots of other reasons.

United tendered its defense to American Home Assurance Company, the insurer for Wisconsin Air, seeking coverage as an insured. AHAC denied a duty to defend or indemnify. For reasons beyond the scope here, the court explained that United qualified as an insured, under the AHAC Policy, only to the extent that the claims against United arose out of Air Wisconsin’s negligence, reckless and willful misconduct, and gross negligence. However, the court determined that the complaint did not allege any negligence, reckless or willful misconduct or gross negligence by Air Wisconsin. Therefore, United was not an insured under the AHAC Policy.

The court’s decision was based on a simple and easy to see fact: Reiners’ complaint did not name or reference Air Wisconsin in any manner. It only mentioned that, on the date of his injury, Reiners was piloting an airplane that belonged to Air Wisconsin. “Reiners’ complaint does not name or reference Air Wisconsin in any manner. Air Wisconsin is not named as a defendant, and Reiners made no allegations of direct negligence against Air Wisconsin. Rather, United was the only named defendant and Reiners alleged that only United was negligent. . . . Not even under the most liberal of constructions can these allegations be viewed as allegations of negligence, reckless and willful misconduct, or gross negligence on the part of Air Wisconsin.”

The opinion does not address this, but it seems possible that the reason why Air Wisconsin was not named in the suit is because pilot Reiners was an employee of Air Wisconsin, and, therefore, was unable to name Air Wisconsin as a defendant because of the workers compensation bar.

In the recent Third Circuit decision in Ramara, Inc. v. Westfield Ins. Co., 814 F.3d 660 (3d Cir. 2016), the court addressed an additional insured endorsement where, for a party to be an AI, the underlying plaintiff’s injuries must have been ‘caused, in whole or in part’ by the named insured’s acts or omissions. But the injured party was an employee of the named insured. So, because of the worker’s compensation bar, the injured party’s complaint said nothing about the named insured – since it was not a defendant. And this happened in a “four corners” state, where the court is precluded from considering anything but the complaint to determine duty to defend. Despite the absence of allegations in the complaint of any acts or omissions of the named insured – and a four corners mandate -- the court held that it was proper to consider the effect of the Workers’ Compensation Act. The court explained that the four corners rule did not permit an insurer to make its coverage decision with blinders on, disclaiming any knowledge of coverage-triggering facts.

While the court in American Home Assurance looked at the possibility of considering extrinsic evidence, to determine whether United could be liable for the actions of Air Wisconsin, it did not consider that the worker’s compensation bar may have been the reason why there were no allegations in the complaint against Air Wisconsin.

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